WSEX and Jay Cohen: The Rise, Fall and Legacy of an Online Gambling Pioneer

The Rise of WSEX and the Birth of Offshore Betting Exchanges

A new memoir is being released next month called Odds Man Out, which documents the story of Jay Cohen from the time he joined the Pacific Stock Exchange in the early 1990s to the day he decided to relinquish his American citizenship in 2012. 

How Jay Cohen and Steve Schillinger Built One of the First Online Sportsbooks

The book highlights how Cohen worked successfully on the stock exchange and met Steve Schillinger, a slightly older trader who was not only successful in the field but was also the trading floor's unofficial bookie taking bets on everything from sporting events to the OJ Simpson trial. One day, with the internet in its infancy, Cohen, Schillinger and Cohen’s clerk Haden Ware decided to move to the small island of Antigua, which had set up a tax-free betting zone, and became the first operators to offer a fully online sportsbook in the country called World Sports Exchange (WSEX).

Why WSEX Was Decades Ahead of Its Time

WSEX was not a traditional sportsbook. While it accepted standard sports wagers, it also allowed users to place and trade bets live during games — something virtually unheard of at the time. In addition, players could trade futures markets on events like golf tournament winners and even the World Series.

The endeavor was highly successful and the company was featured on CBS's 60 Minutes, but its success and notoriety caught the attention of  Janet Reno, the Attorney General under Bill Clinton, who issued indictments against Cohen, Schillinger, Ware and 13 other operators at the time, charging them with violating the 1961 Federal Wire Act. All those charged decided to either return to the U.S. and plead guilty or ignore the charges, but the three managers at World Sports Exchange agreed that Cohen would return to the U.S. and fight the charges while Schillinger and Ware along with another associate would remain in Antigua and continue operating WSEX.com.

Cohen returned to the U.S. and went to trial, but according to the memoir he never believed he received a fair trial, claiming that judge Thomas Griesa disallowed key evidence to be presented and gave instructions to the jury that all but ordered them to find Cohen guilty. Cohen even noted (which was collaborated by a gambling forum poster who also attended the trial), that at least one jury member said they wanted to find Cohen not guilty but the judge’s instructions made that impossible. Cohen was sentenced to 21 months in prison and spent the bulk of his 18 months at a prison camp just outside Las Vegas.

The memoir highlights the rise and fall of WSEX, from its founding to its closure in 2013, detailing the events and circumstances that led to its downfall.

WSEX’s Innovations in Live Betting and Futures Trading

Having been very familiar with the case as I have been writing about the industry since 1998, I took the opportunity to interview Cohen by zoom from his home in Eastern Europe. I asked for feedback about issues brought up in the book as well as a few other things that were not in Odds Man Out. My questions are listed as HH in italics, while Cohen’s responses are shown as JC.

The Early Evolution of Betting Exchanges Before Betfair

HH: WSEX were definitely pioneers in the betting exchange, long before Betfair or prediction markets were created, and they were also pioneers with in-game betting and microbetting such as whether the next at bat would result in a ground out, fly out, strikeout, single, home run, etc. Do you feel resentment that you and Steve Schillinger never got credit for the contributions in sports betting that have become so common today?

JC: Of course! We literally invented it back in 97, and some of my friends who bet it then and now tell me that they don't even do it as well today. They don't have (a process) where you can get in and out easily. You can't just trade in and out of a position. If you bet Team A and they start doing well, you can hedge by betting Team B, but you can't sell your bet back. Well, that's what we had and it would free up your capital. But now, if you make a bet on Team A and if they do really well, to lock it in, you have to bet Team B. You're tying up your money on two bets.

HH: Well, most sportsbooks do have cash-out options, but usually, they're limited and the offer on the cash out more often than not has a hold that is so disadvantageous to the bettor, that it’s usually not worthwhile to cash out.

JC: Okay, so that’s what I'm saying. They still don't do it right, that's what I'm telling you. Even now almost 30 years later, they're still not doing it correctly. I recently applied for a job to manage a team of live traders and they said they were going with someone with more experience. More experience? Did you bring Steve (Schillinger) back to life? Because there is no one with more experience than me. I always say it's like turning Tesla or Edison down for a job at the electric company.

The Federal Case Against Jay Cohen and WSEX

HH: You stated in the book that you had faith in the U.S. legal system. Why was that? Was it something you were taught in school by your father? Were there some instances that made you believe you could get a fair trial in the U.S.?

JC: Well, the day it happened (when I told my lawyer I would return to the U.S.), I remember just hanging up the phone and saying, this won't stand. I said, no judge is going to let this stand. This is ridiculous. I did have a family member who had a case about 20 years earlier and his case was thrown out on a motion to dismiss. So I thought that's kind of how it works. We’ll do a motion to dismiss and it would be tossed. And I think, there were judges who would have thrown this out on the initial motions, just not the judge we got.

HH: In the book you talked about Debevoise and Plimpton. Can you explain exactly how that law firm got involved and why you were so disenfranchised with them?

JC: They threatened me with a civil RICO suit on behalf of the leagues, and the documentation can be viewed on the website wsex.com. One day Steve and I got FedExes saying, Dear Mr. Cohen, Mr. Schillinger, we represent the NFL, the NBA, hockey, and baseball. You're running an illegal business, blah blah blah, you're using our team names, blah blah blah, and, that's when I originally sent my lawyers to go speak to them. They gave us four demands. One was take down their team names, the second was to take down the links to sites like NBA.com, I forget the third (likely to stop using logos) and the fourth was to stop doing business with U.S. residents. We did 3 of the 4, and we thought we had made peace with them. For example for a game between the Cleveland Indians and Toronto Blue Jays we just showed Cleveland vs. Toronto and for a Yankees vs. Mets game we would show New York A vs. New York N, meaning the New York AL team vs. the New York NL team. And we got the letter right after the Wall Street Journal piece by Becky Quick. It was a positive article (for WSEX). We thought we did everything right but when we didn’t agree to stop doing business with U.S. residents they called their buddies at the Southern District of New York and started making their case against us.

But you have to remember that there was a revolving door at Debevoise and it was all connected to the Southern District. When we did a drill down we found out that something like 25 partners at Debevoise had circulated through the Southern District court. If you’re an associate at Debevoise and you go work for the Southern District at the U.S. Attorney’s office for two years and come back to Debevoise then you come back with 2 years credit towards senior partnership at Debevoise. So the original AUSA on the case was Tom Rubin who was previously with Debevoise and the point person at Debevoise was Warrant Reisner, who, before he worked at Debevoise, was in the Southern District. And the letters were very friendly between the law firm and the district court’s office such as “Dear Tom guess what Jay Cohen is doing now?” And that is what was in writing. God knows what they said off the record. But what’s most notable is that before all this happened, the U.S. government’s position was that offshore gambling was out of their jurisdiction. But only by prompting from Debevoise did the District Attorney choose to bring charges against us.

How the U.S. Government Used the Wire Act Against Offshore Gambling Operators

HH: On page 157 of the, in the book, you said that the prosecution contended you were still running the operation despite being in New York, because your name was there when people had to accept the terms and conditions of some documents is that true?

JC: That was one of the most ridiculous parts of the trial. Back in the old days, when we originally set up with the Western Union, we had a link to send money to WSEX on our page. I put my own name on it. I mean, does this sound like someone who has criminal intent? The link said to send it to Swiss American Silver, attention Jay Cohen. Those were the instructions on the website to send money. And, of course, when the world went to trash for me, they took my name down. But apparently, some customers had written down or printed out the old instructions and would still send money with my name on it. And the prosecution came in that day to the trial with a shopping cart with thousands of these printouts and they claimed that proved I was still operating the business. It was obscene and ridiculous.

HH: When the original Gambling Prohibition Act was initiated by John Kyl and later iterated by Janet Reno, I remember they stated their big fear as part of the bill was that some kid was going to get their parents' credit card, click the mouse, and lose the house. It was a ridiculous argument, but what safeguards did WSEX put in place to make sure that kids couldn't gamble, and that problem gamblers were shut out?

JC: WSEX.com started out on day one with NetNanny to prevent kids from playing, but as the company grew, they had a 14-person fraud department and all the department did was screen and do deep dives on customers. And they were good. I remember Haden (Ware) told me stories. He said “I took a call from a guy who wanted to know why we declined his deposit. So I talked to the head of the fraud department, and they said he had a bankruptcy 6 years ago." They had all the investigative tools available at the time to do deep drill downs. As far as problem gamblers, you know, we had the links to Gamblers Anonymous, and we had them verify ID, send the utility bill and a copy of a driver’s license. Was it bulletproof? No, it wasn't bulletproof, of course not. But we took all reasonable precautions. And one thing I had always advocated for, is what they call today two-factor authentication. Plus when people used a credit card I suggested that they should be required to enter a PIN code like they do at an ATM. (That helps with the credit card stealing scenario too). If your parents have the PIN code, the kid doesn’t.

Why Cohen Says He Never Got a Fair Trial

HH: Did the prosecution really call Antigua a third world country? What did you think when you heard that?

JC: Yes. The Antiguan Ambassador was sitting in the second row. I wonder what he was thinking. Antigua is a second world country like most countries in the world, but it is not third world in any shape or form.

HH: In your defense it sounds to me like the arguments your lawyers were trying to use and it made perfect sense, is that if someone is trying to place a bet, the transaction isn’t complete until it’s processed on the sportsbook’s end, and hence the bettor is only transmitting information. No bet actually takes place until processed by you in Antigua on their behalf. Is that accurate?

JC: The money is there first (in Antigua) and everything is there first and that was our position. But the judge rejected it because if the bettor was only submitting a request then it fell under 1084 (b) the exception to the Wire Act and he wouldn’t let the jury see that. As a result, the jury was never allowed to consider that key distinction. Cohen noted that his attorney pushed hard on the issue, but he still regrets that Benjamin Brafman was unable to convince the court to include the Part B exception in the case.

JC: Are you familiar with the situation in Florida?

HH: You mean with the Seminole compact and the ruling by the courts that a bet placed anywhere in Florida is legal because it’s processed on the Seminole computers on Tribal lands?

JC: Okay, so they're taking the same position that I took, and now they're fighting the state of Florida, and the feds, the same feds who told me my thing was, you know, fantasy. The feds sent a letter agreeing with the Indian position that the bet takes place on the server and not the physical location where the bet originates.

HH: You mentioned you tried to get John Roberts to handle your appeal. If he had been allowed to handle the appeal do you think it would have made a difference?

JC: Maybe. I mean, I spoke to him. No one knew who he was at the time, I knew him. He said, I don't take just any case, you know, I need to look at your papers. And a few days later, he called me back, he said, you have a real case here with real issues. I can take this case, I just need to clear this with my executive committee - shouldn't be a problem. And it turns out that was a problem, because a week later, he called me, and he said, I have to conflict out. What happens with these big firms when someone signs up a client is they send out a bulk email around the firm. And (Roberts’ firm) had other lawyers in the firm who represented the AGA, and the NCAA and they objected to him, taking the case. Now I'm not unhappy with how my lawyer handled the case at the Supreme Court, I think he did a great job. But how much of a club is it? I don't know. Roberts at the time was a clerk under Rehnquist who was still a chief justice on the court. Roberts, at the time, had appeared before the court more than any other lawyer in the country and he was a very well-known quantity, so it may have made a difference.

The WTO Battle: Antigua vs the United States

How Offshore Gambling Sparked an International Trade War

HH: In the book you seem to skim through the WTO case. I know that wasn't the focus of the book, but at the time, I was talking to the guy at the WTO handling the case and he said the United States couldn’t use the morality clause which had been its defense because the IHRA allowed the U.S. to take remote bets on horse racing. The WTO said that if the U.S. stopped offering remote horse racing they could win their case but the horse racing industry said they’d give up the IHRA over its dead body. So, the U.S. refused to comply and Antigua awarded $21 million a year in reparations (equal to the amount the WTO said Antigua was losing by not taking remote horse bets). And the WTO also agreed the settlement could be applied by ignoring copyrights and trademarks meaning Antigua could legally provide $10 copies of Microsoft Office or $2 DVDs. Antigua never used that remedy. In your opinion, should they have?

JC: Of course they should have. It was a long process.  We won the case, and the morality cause failed during the review because it just didn’t pass the laugh test. You have gambling everywhere. You can't hide behind the morality clause. It wasn't just about horse racing. We won the case and  the U.S. appealed. And then, on that appeal, Antigua won again. But, on the appeal, The WTO threw out our state law claims, not because they didn't have merit, but because we didn't document them enough. We could have spent another $2 million documenting every state law I suppose. Then after the appeal, that's when the U.S. put a press release out claiming they won, which just made me sick. I can't remember if it was AP, or Reuters, who noted the U.S. won and I spoke to them and said did you read their decision? It was about 300 pages. And they said no we just read the U.S. press release and they said they won. So they put out a follow-up article and said both sides claim they won, fine. Then there was a compliance hearing and the WTO said the U.S. isn’t in compliance.

The $21 Million WTO Ruling the U.S. Never Honored

And then came the sanctions. The WTO came up with this 21 million dollar figure. The Antiguan government For years after that said “oh, we're negotiating," using diplomacy, and every 6 months or year, there'd be a meeting. Oh, they're sending this guy, that guy, big names would show up at these meetings. And every year, they offered them nothing. And then the U.S. announced that they're going to withdraw from the commitment. The only way to withdraw from the commitment is you need unanimous consent. So until you settle with Antigua, you can't get unanimous consent.

It’s notable it was about that time that wiki cables came out. And we pulled these cables, and we saw that the UK had said they objected, but their settlement to withdraw their objection was about a billion and a half dollars in trade concessions, which the U.S. said okay to. But Antigua, they didn't want to give anything and Antigua wasn’t going to ask for traditional tariffs as that would only harm the Antiguan people. So we asked for the right to violate copyrights and trademarks which the WTO said was ok. But Antigua did not have the guts to use those after Lester Bird got, thrown out. I'm convinced Lester would have used the trademark and copyright ruling if he was still in power.  But they were constantly scared to bring the sanctions. They thought they'd end up on some tourism blacklist, you know, they thought they'd end up on a do-not-travel list, which would be another violation of the WTO. Technically, the case is still open to this day. The other thing of interest with the WTO is that with any other case if the U.S. loses a case then the USTR almost becomes your lobbyist. They lobby Congress to come into compliance with the WTO decision. But not in this case. They still fought all the way. They never, they never advocated for this decision. It was we're a thousand times bigger than you, what can you do? What are you going to do to us? So, that's it.

It should be noted that seven countries filed a complaint against the U.S. with regards to their choice to violate the GATS agreement including Australia, Canada, Costa Rica, the EU, India, Japan and Macau.  The U.S. reached a settlement agreement with all but Antigua, India (who later withdrew their complaint), and Macau.

HH: It's clear in your book that most of your anger is directed towards a judge who you said  made up his mind before the case started, and I think most people agree on that. I know you tried to get a mistrial. Were there any other avenues you could have used to get a new judge, or were you stuck?

JC: No, you're pretty much stuck. There was one point, before the trial that I said to Ben (the lawyer representing Cohen), shouldn’t we force a speedy trial?  He said no.  We have live viable motions but if we file for a speedy trial, the judge is just going to dismiss all the motions and go to trial. And when I discussed how upset I was with Griesa I wondered who we would get if Griesa was thrown off. And whoever it was, I don't remember the name, but Ben said he is as bad as Griesa and is what we call a hanging judge. You'll get 20 years. So to get a new judge would have been difficult and honestly it should be difficult. You shouldn’t be able to shop judges.

HH: You mentioned the UIGEA was the biggest problem you had which ultimately led to payment processing after 2006 and the inevitable closure of the company, but I know there was also a scandal with Stanford Bank which led to Antigua’s banking system being declared as rogue by the U.S. There were some suggestions that WSEX got caught up in that too which led to the payment issues. Was that true?

JC: Zero. Stanford Bank had nothing to do with WSEX or any other gaming company. They would not take gaming business. I wish I could tell you that as it would be a great answer, hey Stanford took the money. But that wasn’t the case. They would not take gaming business and I think the reason is they didn’t want extra eyes to see what they were up to.

HH: Donald Trump as you know pardoned Billy Walters. Trump said gambling is everywhere, it’s a harmless activity and he was overcharged. If Trump ever offered you a pardon would you take it?

JC: Yes. I sent a letter at the end of the first term. I don't know if it went anywhere. I sent one letter to Trump and one to Kushner by FedEx and I never heard anything. But, yeah, absolutely. I used to not want a pardon, but now I'm becoming more practical and I’d like a pardon.

HH: So if you got a pardon would you come back to the U.S. or would you stay in Eastern Europe?

JC: I don't know if they'd let me. They still might not let me. I'm having trouble getting a visa to come visit. I gave up my citizenship for two reasons.  Number one was what they did to me, what they put me through. And number two (was the hypocrisy). What would aggravate me most over the years is that we're going through all those different conflicts like the Iraq War and  several presidents would stand up there and say, we honor our treaties. You know, they were talking about the torture treaties and whatever. All I kept thinking is the WTO. You don't honor your treaties. You lost, and you couldn't act in more bad faith if you tried.

And it was, also a personal thing. I ran a legal business in another country, I was minding my business, I wasn't bothering anyone, I wasn't defrauding anyone. But not only did they run me out of business and destroy my company and kill my partner, they put me in prison for 18 months. It’s so bizarre and most of the people I met there thought it was bizarre that I was in prison also.

HH: In the book, it says, you tested positive for opiates, which is what got you the real hard time for the last part of your sentence.  You claimed it was from a poppy seed bun. I thought that was an urban legend. So you're trying to say if you had sesame seed buns instead of poppy seed buns, you wouldn't have had to do the second stint in prison?

JC: Yes and that was another thing that was interesting.  I'm trying to remember my numbers but they were, like, 1,100 nanograms per milliliter and the BOP levels that 800 is a positive. I had my lawyers drill down on everything at the time, and they found, I forgot what it exactly, but the U.S. military uses 1,200 nanograms for a positive test. And then they said a hair test will distinguish. So I sent out a piece of my hair to be tested and of course it came back negative, but they said no because we didn't test it. It was like talking to a wall. But a hair test will distinguish (if you used hard drugs) but a piss test won't. I've never done drugs in my life. I'm not even a drinker. I don't smoke, I don't drink. It was so preposterous.

HH: There's still offshore operators catering to U.S. clients today like Bet Online, Heritage Sports etc. and what they all have in common is they have adopted cryptocurrency. I know it's all hypothetical, but had Bitcoin been around in 2007 instead of 2010, do you think WSEX would still be operating?

JC: Well, I… I was first turned on to Bitcoin in 2009 when my IT guy said to me there's this new thing called Bitcoin. At the time, it was about 25 cents. And I said, Bit… what? He said, yeah, maybe. But by that time, you've just been through so many crooked processors, and shenanigans that  . . . [we weren't about to explore another completely new processing method].

What Today’s Prediction Markets Can Learn From WSEX

HH: You’ve  probably heard about the prediction markets such as Kalshi, Polymarket etc. which are big in the news nowadays that will take bets on anything. I know in the book you said Steve used to love this kind of stuff. He put up a market while working at the stock exchange regarding the O.J. Simpson trial. But these sites take bets on things such as will The Ayatollah be killed tomorrow, will Maduro be arrested in Venezuela and such. It’s almost all insider trading. People in the government knew what was about to happen and bet on it or had friends bet on it for them. I’m just curious what you think Steve Schillinger would think about these sites? I know it’s hypothetical but would he have said it’s great or would he have bemoaned them because it’s all insider trading plus most of these bets can’t be easily measured for payouts and often go to some weird tribunal to settle.

JC:  We used to put up political markets on some Senate races and stuff and Steve would say what do you really know? Who's betting? For normal size bets he was ok but he would be very suspicious of anyone who bet any real money. He would be fine with it, but he would be very leery and he would do it with very low limits. And he would assume that anyone betting real money has some inside track, but as I understand it, and you can tell me again, I'm not on these things, these Kalshi and Polymarket things, they're P2P, aren't they?

HH: Yes.

JC: So they’re just matching and taking a commission. But we were always the counterparty and Steve would always think if they are betting this stuff they know something is up and would be suspicious.

HH: I noticed WSEX.com is back up and has information relating to everything from your book. I hope people log in to read it. Thanks for your time.

Odds Man Out: The Untold Story of How Professional Sports Crushed the Pioneers of Online Betting is available for pre-order in the Amazon bookstore and online at WSEX.com.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!